- Popularity doesn’t equate to suitability.
- Investors must learn to define their requirements and goals from their investments.
- A well-designed income strategy with active management can support financial security in retirement.
- We discuss our top picks with yields +8%.
- I am Rida Morwa. I have been advising individual and institutional clients on high yield investment strategies since 1991. I lead the investing group High Dividend Opportunities.
Co-authored with Hidden Opportunities
In the world of investing, popularity often overshadows suitability. Just because an investment is widely followed or highly regarded doesn’t mean that it’s the right fit for your specific requirements. This is especially true when it comes to income-focused strategies, where the allure of dividend growth and premium names often influences the decision-making.
Take the Schwab U.S. Dividend Equity ETF (SCHD), for example. With over 110,000 followers on Seeking Alpha, SCHD is a massively popular ETF. It promises income growth, offering investors the prospect of rising annual dividend payments. SCHD tracks the Dow Jones U.S. Dividend 100 Index, with the bulk of its holdings being popular names with consistent payment raises to shareholders. On the surface, this is incredibly appealing. After all, who wouldn’t want to invest in companies with lower payout ratios, steady revenue growth, and a history of consistent dividend raises?
However, dividend growth is not a guarantee of safety. Companies that have raised dividends for decades can still falter, and even the most reliable payers can cut their dividends when faced with financial distress. Consider the following examples of companies that, just a few years ago, no one would have expected to cut or eliminate their dividends.
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